WPC- Regional Meeting Latin American and IV Colombian Oil & Gas Investment Conference , Cartagena, Colombia Jun-10

1. Observations from the Cartagena Conference.
The Conference week from the 22nd to 25th June in Cartagena

included a variety of energy activities-
i. The awarding of petroleum exploitation licences conducted by the ANH (National Administration of Hydrocarbons) through a transparent bidding process called The Open Round (TOR) demonstrated the maturity, sophistication and advances of the Colombian economy and the political structure.

ii. The WPC regional meeting focusing on the challenges (commercial, technical) for the developing sustainable energy resources for the region through potential sharing of infrastructure.
iii. Issues related to investment oil and gas developments, use of technology, environment, transportation and the opportunities for non conventional oil and gas.
These events created a very positive attitude to the recent achievements in Colombia under the current Uribe Government. The attendance of President Uribe and President elect Santos (who will take over in August 2010) to give presentations on their government's achievements and the policies to be followed under the new Santos Government, underline the central importance of the energy exploitation to the Colombian economy. These include provision of a vehicle to expand the economy, improve employment and training opportunities and provide the government with resources to improve social, education and health infrastructure in Colombia. Overall these are critical steps to improving long-term security and prosperity.
The strong regional representation from participants such as former President Lagos of Chile, the heads of the key NOCs from Peru, Brazil, Panama, Mexico and their respective administrative organisations in the Latin America region and the Norwegian President of Petroteam A.S., gave this conference the gravitas of the importance of energy developments in Latin American and the central role that Colombia will play in these regional developments.

2. The Open Round 2010 (TOR) was conducted by ANH and invited the industry to bid on 229 petroleum licences ranging from existing producing (onshore) areas to offshore (exploration) areas. The results, announced on the 22nd June, were an excellent achievement for ANH and Colombia, with 96 petroleum licences awarded to about 23 companies (representing domestic and multinational companies) with a commitment to spend a total of about US$795 million over the next 3 years.
3. The Energy Industry in Colombia. Current production is estimated to be 800,000 bopd. These licence awards are forecast to increase Colombian oil production to 1.5 million bopd by 2015.
The key Colombian company is the NOC Ecopetrol. It has substantial resources (OOIP-43.9 billion barrels with 42% in heavy oil, 43% in conventional oil and 15% in gas resources) and integrated interests in transportation, refining and chemicals. It is using it base to expand its interests in the region in the Gulf of Mexico, Caribbean and Pacific coast in Peru. A non exhaustive list of the key participants in Colombia includes Nexen, Pacific Rubiales and Talisman from Canada and multinationals such as BP, Chevron, BHPBilliton, Repsol and Petrobas which demonstrates the commercial and technical viability of the petroleum sector. A selection of these companies made strong presentations about the potential in Colombia and their intent to maintain & expand operations.
This successful licensing round is not without challenges. It will undoubtedly put strains on the infrastructure, resources and services as the companies carry out their commitment work during the next 3 years.
The fiscal regime is a competitive PSC and is based on production sliding scale royalty payments with an additional royalty payable once the cumulative production exceeds 5.0 million barrels. This additional royalty is based on the current market price compared to a WTI reference market price (currently set at about US$32/bbl for 29 API) - this royalty is capped at 50%. Gas royalty payments are at 80% of the oil royalty rates with a similar additional royalty based on reference to a Henry Hub gas price in the US.
Colombia has substantial non conventional resources in coal seam gas ("CSG") which are not fully understood. The conference heard potential numbers in excess of 100TCF of CSG resources, but they are in need of rotation of the drilling bit to firm up the numbers.
The administration of the licences is with the ANH and new regulations covering the issuance of licences for the exploitation of this non conventional sector are expected to be announced before the end of 2010. The size of these resources will lend itself to both substantial domestic gas production for the population and industry as well as export markets based on international market prices. There are parallel opportunities for LNG developments for sales into the Caribbean and into Latin America given the planned development of LNG degassing infrastructure on the east coast of South America in Argentina, Brazil and also in energy deficient Chile and Peru.
This is an exciting time to be associated with the energy developments in Colombia and Latin America in general, as energy demand in the region drives for access to more energy reserves. Coupled with greater cooperation, albeit at a slow pace, this will see new markets opening and higher levels of exploitation to satisfy demand. The region also has a focus on environmental and social factors especially with the use of non conventional energy resources.
The energy sector is a critical industry to the Colombian Government which must use future tax returns from the energy developments that hopefully will result from the large injection of exploitation capital of US $ 795 million over the next 3 years for infrastructure. Expenditure will involve the transportation and communications sectors as well as providing training and employment opportunities, all of which help to raise the economic standards in Colombia.

ii. The WPC regional meeting focusing on the challenges (commercial, technical) for the developing sustainable energy resources for the region through potential sharing of infrastructure.
iii. Issues related to investment oil and gas developments, use of technology, environment, transportation and the opportunities for non conventional oil and gas.
These events created a very positive attitude to the recent achievements in Colombia under the current Uribe Government. The attendance of President Uribe and President elect Santos (who will take over in August 2010) to give presentations on their government's achievements and the policies to be followed under the new Santos Government, underline the central importance of the energy exploitation to the Colombian economy. These include provision of a vehicle to expand the economy, improve employment and training opportunities and provide the government with resources to improve social, education and health infrastructure in Colombia. Overall these are critical steps to improving long-term security and prosperity.
The strong regional representation from participants such as former President Lagos of Chile, the heads of the key NOCs from Peru, Brazil, Panama, Mexico and their respective administrative organisations in the Latin America region and the Norwegian President of Petroteam A.S., gave this conference the gravitas of the importance of energy developments in Latin American and the central role that Colombia will play in these regional developments.

2. The Open Round 2010 (TOR) was conducted by ANH and invited the industry to bid on 229 petroleum licences ranging from existing producing (onshore) areas to offshore (exploration) areas. The results, announced on the 22nd June, were an excellent achievement for ANH and Colombia, with 96 petroleum licences awarded to about 23 companies (representing domestic and multinational companies) with a commitment to spend a total of about US$795 million over the next 3 years.
3. The Energy Industry in Colombia. Current production is estimated to be 800,000 bopd. These licence awards are forecast to increase Colombian oil production to 1.5 million bopd by 2015.
The key Colombian company is the NOC Ecopetrol. It has substantial resources (OOIP-43.9 billion barrels with 42% in heavy oil, 43% in conventional oil and 15% in gas resources) and integrated interests in transportation, refining and chemicals. It is using it base to expand its interests in the region in the Gulf of Mexico, Caribbean and Pacific coast in Peru. A non exhaustive list of the key participants in Colombia includes Nexen, Pacific Rubiales and Talisman from Canada and multinationals such as BP, Chevron, BHPBilliton, Repsol and Petrobas which demonstrates the commercial and technical viability of the petroleum sector. A selection of these companies made strong presentations about the potential in Colombia and their intent to maintain & expand operations.
This successful licensing round is not without challenges. It will undoubtedly put strains on the infrastructure, resources and services as the companies carry out their commitment work during the next 3 years.
The fiscal regime is a competitive PSC and is based on production sliding scale royalty payments with an additional royalty payable once the cumulative production exceeds 5.0 million barrels. This additional royalty is based on the current market price compared to a WTI reference market price (currently set at about US$32/bbl for 29 API) - this royalty is capped at 50%. Gas royalty payments are at 80% of the oil royalty rates with a similar additional royalty based on reference to a Henry Hub gas price in the US.
Colombia has substantial non conventional resources in coal seam gas ("CSG") which are not fully understood. The conference heard potential numbers in excess of 100TCF of CSG resources, but they are in need of rotation of the drilling bit to firm up the numbers.
The administration of the licences is with the ANH and new regulations covering the issuance of licences for the exploitation of this non conventional sector are expected to be announced before the end of 2010. The size of these resources will lend itself to both substantial domestic gas production for the population and industry as well as export markets based on international market prices. There are parallel opportunities for LNG developments for sales into the Caribbean and into Latin America given the planned development of LNG degassing infrastructure on the east coast of South America in Argentina, Brazil and also in energy deficient Chile and Peru.
This is an exciting time to be associated with the energy developments in Colombia and Latin America in general, as energy demand in the region drives for access to more energy reserves. Coupled with greater cooperation, albeit at a slow pace, this will see new markets opening and higher levels of exploitation to satisfy demand. The region also has a focus on environmental and social factors especially with the use of non conventional energy resources.
The energy sector is a critical industry to the Colombian Government which must use future tax returns from the energy developments that hopefully will result from the large injection of exploitation capital of US $ 795 million over the next 3 years for infrastructure. Expenditure will involve the transportation and communications sectors as well as providing training and employment opportunities, all of which help to raise the economic standards in Colombia.

Geoffrey R Widmer
CEO,Palliser Group
61-3-9819-3995(p)
61-(0) 419-310-601
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
www.palliser.com.au
6th July 2010


Disclaimer:
The preceding commentary is a complication of views and data expressed at the 22nd to 25th June 2010 WPC regional Conference expressed by the various participants. The Palliser Group has not verified these facts as presented to the conference and has not made independent enquiries as to the validity of the statements made or of the data presented. The Palliser Group recognises the authors of the various views as detailed in the WPC Conference Program.